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DAYTON, Ohio (


) -- A flight to quality will benefit utility stocks, which have been excluded from the summer rally. Here is a small-cap electricity seller with an ample margin of safety.

Dayton, Ohio-based


( DPL) remained profitable during the recession. The company boasts a three-year growth rate of 6% for revenue and 13% for profit. Such old-line businesses garner little attention from Wall Street, but reward investors with consistent dividend growth and price performance.

Over the past year, DPL shares have rallied 19%, outpacing the 12% advance of the

S&P 400 Utilities Index

. DPL shares have gained 8.8% a year, on average, in the past five years, compared with the benchmark's 6.3% advance.

The company's second-quarter net income dropped 12% to $42 million, or 37 cents a share. Revenue declined 5% to $361 million. DPL's gross margin rose from 32% to 33%, while its operating margin remained steady at 23%.

DPL holds $64 million of cash, translating to a less-than-ideal quick ratio of 0.6. The company depends on leverage to operate, with a debt-to-equity ratio of 1.5. While poor liquidity and heavy debt are common among utilities, they tend to weather economic swings better than other industries.

DPL trades at a trailing price-to-earnings ratio of 13 and a forward price-to-earnings ratio of 11, a discount to utility peers. But the stock is trading at a premium based on book value and sales.

With a beta of 0.6, DPL doesn't closely track the market, which makes it an attractive defensive stock.Its 4.4 dividend yield is better than the 4.2 average of the industry and the 2.4 average of the

S&P 500 Index

. The company, which has a safe payout ratio of 56%, has increased its dividend for 12 consecutive years.

The company's quarterly net margin of 12% is higher than those of large-cap peers

Consolidated Edison

(ED) - Get Free Report


FPL Group

(FPL) - Get Free Report

. We rate DPL "buy."

-- Reported by Jake Lynch in Boston.